Long Term Residential Tenancies: What Happens to the Security Deposit When the Property Management Agreement Has Been Terminated

There appears to be some confusion on what long-term residential property managers are to do with a security deposit when property management services have been terminated. If the owner has secured the services of another property manager, the process is easy. All security deposits being held for the benefit of any tenant are transferred to the new property manager along with an accurate accounting. Once this transfer has occurred, the transferor (property manager) is free from the obligation to hold the security deposit on behalf of the tenant. This is what every property manager wants in this situation is to be relieved of any further obligations relating to the security deposit.

However, it is a little bit more problematic when the property management agreement is terminated by either party and the owner does not have a new property manager. In this situation, the property manager is required to get the tenant’s authorization to transfer the funds directly to the owner. If the tenant is not comfortable with the owner, sometimes they will not agree. If no authorization is given by the tenant, the owner will either have to agree to send the security deposit back to the tenant (which we all know will not happen) or the security deposit is continued to be held by the property manager who is no longer managing the property. Most property managers do not like this answer because they want the matter closed out and disbursed but the technicalities of the circumstance and current Florida law require the funds to remain with the former property manager. Problems may arise in the event there is a security deposit claim dispute. The former property manager is, unfortunately, caught in the middle. If you are caught in this situation and want to discuss how to avoid it, call our office or an attorney of your choice.

This is not intended to be legal advice regarding your individual situation and you should seek the services of an experienced real estate attorney.

About the author: Lisa A. Troell is an attorney practicing in the areas of real estate including landlord/tenant and property management and is a shareholder with the law firm of Chesser & Barr, PA located in Okaloosa County, FL.